Abstract:

The banking landscape in Uganda is such that there is a section of commercial banks that has consistently posted impressive performance figures, particularly over the last five years, while the performance of the others leaves a lot to be desired. This study’s purpose was to examine the effect of differentiation strategy on the financial performance of commercial banks in Uganda. The study employed a cross-sectional design characterized by a quantitative approach. The target population in this study constituted 210 Senior Managers and Chief Executives of 10 selected commercial banks in Uganda that have been rated as the best performing commercial banks in the five years (2015-2019). A sample of 144 individuals was calculated for this study using Yamane’s (1967) formula, and the probability sampling technique of stratified proportionate random sampling was used in selecting Senior Managers of the selected commercial banks, and these were surveyed using a structured self-completion questionnaire. Quantitative data were analyzed descriptively using statistics such as frequencies, percentages, means, and standard deviations; and inferentially using partial least squares structural equation modelling (PLS-SEM). The findings showed a positive and statistically significant relationship between product differentiation strategy and financial performance in terms of ROI (β = 0.5841, ρ<0.05). The study concluded that product differentiation strategy is an important factor in the financial performance of commercial banks in Uganda particularly in terms of ROI.

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